Quite right, we should abolish stamp duty on shares


As ever when there's a budget in the offing we've people making suggestions about what should be in said budget. Some of these suggestions are even sensible, as is this one arguing that we should abolish stamp duty on shares:

“Abolishing the tax would lead to an immediate 7.7pc, or £133bn, increase in the value of listed companies on the LSE’s main market on the day of abolition,” he wrote. “It would incentivise saving for the future, removing a £402m a year burden from UK pension schemes and reduce the tax liability by up to £18,000 from the average UK family’s savings.”

A previous academic look into the subject is here.

The important thing to understand is the incidence of this tax. Certainly, it's the people buying and selling shares that appear to pay the tax itself. But after everything has flowed through the economy who is it that actually bears the economic cost of its existence? One answer is as above, pension funds. The end result is that pensions are lower than they would be in the absence of this tax. And, given that we tax privilege pensions in the first place it seems most odd to have another tax which then reduces them.

The other group who lose out is the workers in the country in general. As is noted above share prices would rise in the absence of the tax. This is equal and equivalent to making capital cheaper for companies. Cheaper capital will mean more capital being employed. And it's the addition of capital to labour that increases productivity, the average productivity of labour being what determines the average wages in the economy. Thus more expensive capital lowers average wages.

A tax which both lowers pensions and also wages in general doesn't seem to have a lot going for it. So, yes, we agree, abolish stamp duty on shares.